The first earnings season of 2015 is almost here. Next week, Alcoa (AA) will kick off the six-week silly season of futilely attempting to predict which companies will exceed analyst expectations and which will fall short.
It is that time of the year when the professional in house traders on Wall Street are getting set to vacuum small fortunes out of retail pockets as everyone makes big bets on wild guesses about earnings.
Running a portfolio based on quarterly projections is almost as silly as running a multi-billion company just to hit three-month targets, but that’s the world we live in.
I have no way of knowing which of my little bank stocks will report the best results this quarter or this year. There is no way of knowing in advance which of my bank stock will have the best results this year or which ones will see the largest increase in stock price.
However, just as any Texas Hold ’em player knows that the chances of winning are much greater when holding aces than chasing a gut shot straight, I know that odds are the top performers will be bank stocks that trade below book value with recent insider buying.
Cape Bancorp of New Jersey (CBNJ)
Cape Bancorp of New Jersey (CBNJ) is a solid selection for the year ahead in my opinion. The bank operates in the troubled region around Atlantic City, New Jersey, and the perception of poor conditions has hurt the stock. While CBNJ does have some exposure to the failing gambling industry, it also has a decent commercial l business lending to amusement and lodging interests along the barrier island of south Jersey and a very strong business lending to the local commercial fishing industry.
Cape Bancorp has exited the competitive residential mortgage business and is focusing on commercial operations. It has opened several locations in the Philadelphia marketplace to expand its presence in key commercial lending markets, and so far the plan is working as expected.
Cape is also buying another bank in the region. The merger with Colonial Bank (COBK) should close sometime later this year and help further grow the asset base and earnings power of the bank. CBNJ stock is cheap trading at just 80% of book value, and both the CEO and CFO have been buying shares over the past several months.
MBT Financial (MBTF)
MBT Financial (MBTF) is a 24-branch bank in Monroe Michigan about 35 miles south of Detroit. The bank struggled during the credit crisis as the real estate markets in the region were ravaged in the recession.
MBT Financial has done a fantastic job of repairing its balance sheet. Earnings were up 45% year-over-year as of the end of the rid quarter as nonperforming assets fell by 40%. The stock is cheap, trading at just 84% of book value and, once again, both the CEO and CFO have been buyers of the stock in recent months.
Bottom Line
I have no idea who will have the best earnings report for the fourth quarter. I have some ideas which bank stocks had the best improvements in earnings and asset quality in the fourth quarter, but I do not know for sure.
I do know that buying bank stocks below book value when insiders have been buying is a pretty good bet, so that’s how I will approach 2015.
As of this writing, Tim Melvin was long CBNJ and MBTF.
